The Central Bank of Nigeria sold a whopping $36.6 billion in forex in 2018 according to a report released during the week on its website. This compares to $15.8 billion sold in 2017, a whopping 130% rise.

The report, 2018 Activity report, is aimed at “informing the public of the measures taken by the Department to implement the decisions of the CBN and its Monetary Policy Committee towards the achievement of price and financial system stability.”

Key numbers: The CBN explained the breakdown of the $36.6 billion as $25.6 billion for spot sales and $11 billion in forward transactions.

• Included in the spot sale was $8.2 billion sold in the I&E window.

• The I&E window is where investors come to buy and sell forex and its the closest to a market with an exchange rate that floats.

• Total sales in 2017 were $15.8 billion lower than spot sales recorded in 2018. The bank reported that spot sales for 2017 were just $3.4 billion compared to $25.6 billion in 2018 alone.

• Net sales (sum of forex sold and bought by the CBN) was $17.8 billion in 2018 compared to $9.7 billion in 2017

Numbers explained: The higher sales recorded in 2018 suggest there was more demand for forex in 2018 compared to 2017. Thus, to keep the exchange rate stable and speculators at bay, the CBN had to increase its defense of the naira by selling more dollars. This is further buttressed by the more than 8 folds increase in spot sales with most of it targeted at the I&E window where foreign investors trade.

By burning through reserves, the CBN sacrifices forex savings for naira stability hoping that this will help drive down the inflation rate. Critics believe this might be work in the short term but it is detrimental in the long run when we factor in the opportunity cost of burning out reserves.

CBN’s explanation: “The increased volume of transactions in 2018 was attributable largely to the Bank’s foreign exchange policy and its management, coupled with the improvement in the levels of foreign reserves during the year.”

The exchange rate debacle: Most analysts we have spoken to believe the exchange rate is somewhat overvalued at N365. They point to frequent interventions in the FX market by the CBN as one of such artificial dynamics that inhibits price discovery. The more CBN intervenes to stifle demand the better the chances of the naira holding sway at its current price.

The upshots: Now that the presidential elections are over and the Central Bank Governor guaranteed another term of 5 years, the focus will not be channeled at how the CBN plans to manage the exchange rate. Will it be more of the same or a change of course. Rumours that the CBN might devalue something this year will likely persist. Some believe it is just a matter of time particularly if oil price fails to recover past the $70 mark.

Source: https://nairametrics.com/2019/05/17/central-bank-of-nigeria-blows-36-billion-defending-the-naira-in-2018-up-130-from-2017/#comments

Front Page: Lalasticlala

i thought CBN was meant to sell Forex, as when they stoped selling forex Nigerian luxury import addicted market started feeling the pain as every retailer complained bitterly of forex shortage been the factor for increased pricing

Highly commendable

I still think they should just float the currency. Maintaining this position seems to be getting more expansive.

Rumours that the CBN might devalue something this year will likely persist. 

Where'd yall hear this?

Hope they know what they are doing

Hmmmm. This ship never steady oh. The sea is still having a fun time with it

See money.... still naira nor gree rise

That is huge but the question is how long we can sustain that. Our inability to produce anything even to nylon condom is really affecting us negatively. we need to be known and exporting something very important to get foreign currency exchange, we would still have to support naira with more billion dollars....

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AkataYeriYeri:
Highly commendable

Highly unsustainable

maybachmusic:


Highly unsustainable

Can you type this without shedding tears?

Blue3k:
I still think they should just float the currency. Maintaining this position seems to be getting more expansive.



Where'd yall hear this?

Float currency ke, when we import over 80% of our consumables, including fuel. That would have disastrous socioeconomic consequences.

Before the government can attempt to float the naira, we muse stop the importation of the following items;
1. Fuel - petrol, diesel, kerosene and aviation fuel.
2. Rice
3. Chicken and other poultry products
4. Steel.
5. Bitumen.
6. Fish

AkataYeriYeri:

Can you type this without shedding tears?

Yes

AkataYeriYeri:

Can you type this without shedding tears?

Yes

Can your reply without smoking weed?

They sell to keep black mArket speculators at bay based on the level of demand. It’s artificial bt necessary however costing us alot in foreign reserves.

wirinet:

Float currency ke, when we import over 80% of our consumables, including fuel. That would have disastrous socioeconomic consequences.

The currency and the inflation would stabilize. It worked for Egypt and Turkey who recently did it. They both had to give up strong currency policy since itgot too expensive.

Blue3k:
I still think they should just float the currency. Maintaining this position seems to be getting more expansive.



Where'd yall hear this?

Blue, this ain't rumour. I asked my company's CFO last year and he confirmed it.

Blue3k:


The currency and the inflation would stabilize. It worked for Egypt and Turkey who recently did it. They both had to give up strong currency policy since itgot too expensive.

The value of a floating currency is the equilibrium point between demand and supply. With us importing everything with dollars, there will always be upward pressure on the naira. That means even if dollars sell at N1000, we will have no choice but to buy to import fuel, rice, wines, orange juice (concentrate ), etc. This will cause runaway inflation.

We are said to have passed the reccession period, why is the sustainance fund increasing?

Nigeria, a country where the dollar is more valuable and earns more respect than our own currency

jaxxy:
They sell to keep black mArket speculators at bay based on the level of demand. It’s artificial bt necessary however costing us alot in foreign reserves.

These are the painful prices we have to pay to stabilize the economy, while working at reducing our dependence on imported items.
The government had attempted floating the naira at the initial stage of the global oil crash of 2015, and the dollar jumped to 500 naira. It cause a lot of panic.

wirinet:


These are the painful prices we have to pay to stabilize the economy, while working at reducing our dependence on imported items.
The government had attempted floating the naira at the initial stage of the global oil crash of 2015, and the dollar jumped to 500 naira. It cause a lot of panic.

Do we even have a road map to reducing dependence on imported items? We just talking as usual no definite plan. We need to export more or be more self sufficient.

There is no economic plan... A country with no economic plan is going Nowhere.

Blue3k:
I still think they should just float the currency. Maintaining this position seems to be getting more expansive.



Where'd yall hear this?

No country on earth float their currency.

Okay

So, we're living fake lives. Emefiele sef

wirinet:

A value of a floating currently is the equilibrium point between demand and supply. With us importing everything with dollars, there will always be upward pressure on the naira. That means even if dollars sell at N1000, we will have no choice but to buy to import fuel, rice, wines, orange juice (concentrate ), etc. This will cause runaway inflation.

Ok they can keep defending it to they run out of cash. If they're actually thinking of devaluing currency they know unsustainable.

I wouldn't think its a big deal considering Nigeria has a trade supplus most of the time. Then imports will drop after refineries come online. Lastly floating naira didn't kill Nigerians in the past and it lead to better growth using the two examples as reference.

dfrost:


Blue, this ain't rumour. I asked my company's CFO last year and he confirmed it.

Alright I wait and see. Give u credit if yall called it..

Blue3k:


Ok they can keep defending it to they run out of cash. If they're actually thinking of devaluing currency they know unsustainable.

I wouldn't think its a big deal considering Nigeria has a trade supplus most of the time. Then imports will drop after refineries come online. Lastly floating naira didn't kill Nigerians in the past and it lead to better growth using the two examples as reference.



Alright I wait and see. Give u credit if yall called it..

It almost did.
Floating your national currency was the main fulcrum the IMF condition of SAP, which IBB tried to implement. It failed woefully.
IBB Babangida met the exchange rate at one Naira to a Dollar in 1984, after SAP induced devaluation, he left it at N22 to the dollar. That's a 2100% increase over a period of about 6 year. Was the economy any better off? No, it was far worse.

wow. all this pressure is the actual reality and of the failed economy by the buharidist. the man simply knows next to nothing in revamping our once glorious days.

devaluation or floating? The government will do one of the two... But not this year.
The moment Dangote refinery is finished, expect a tweaking of the dollar rates because petroleum products are the MAJOR consumer of dollars from the system.
If you float the naira when you are a net importer of petrol, inflation SKYROCKETs if you float when you have full domestic production, the impact of price rise of other imported products like rice and fish can be reduced by government policies to encourage domestic production.